When individuals consider the list of positive attributes associated with life annuities, i.e., guaranteed payments you cannot outlive, low cost, access to invested capital, and reasonably priced features such as inflation adjustment and legacy benefits, the argument for this income solution in retirement is compelling. By covering at least basic expenses with lifetime income annuities, retirees are able to focus on discretionary funds as a source for enjoyment.
Locking in basic expenses also means that the retiree’s discretionary funds can remain invested in equities for a longer period of time, bringing the benefits of historically higher returns that can stretch the useful life of those funds even further. Income annuities may also be a vehicle that enables retirees to delay taking Social Security benefits until they are fully vested, bringing substantially higher payments at that point.
The key in all of this is to begin by covering all of the basic living expenses with lifetime income annuities. Then, to provide for additional desirable consumption levels, youwill want to annuitize a goodly portion of the remainder of your assets, while making provisions for extra emergency expenses and, if desired, a bequest. These last two items can be accomplished through combinations of insurance and savings.
When this is undertaken, you can enjoy your retirement without the burden of financial worries and focus on more productive uses of your time and attention!
The days of long-term care policies has faded in recent years. What used to be a crowded market with every company from John Hancock to Prudential offering policies continues to dwindle to just a few major companies today. In an article for Barron’s last year, Nancy F. Smith pointed out that approximately 100 companies offered these policies just ten years ago.
While a growing number of providers phased out the policies altogether, they are still required to honor the policies already in place. However, this doesn’t exclude the companies from hiking up premiums. In the same Barron’s article, it notes that some states greenlit massive rate hikes. Smith explains that, “State insurance regulators have granted requests for rate increases ranging from MetLife’s 20.5% in New Jersey in 2012 to Allianz’s whopping 75% in Texas in 2014.”
The changes in the market are now ushering in a new trend, especially amongst the wealthy. Long-term care insurance is a single-premium hybrid policy with a multiplier for long-term benefits. As I noted in my book, Outlasting the Storm: A Survival Guide to Retirement Income Planning, new hybrid annuities with guaranteed income riders create guaranteed income financial flows. These are immensely useful because you can turn on the stream as your lump sum continues to earn interest depending on your credit strategy. This provides you an anxiety-free mentality towards loss while granting the retiree the option to control their financial flow.
As more hybrid policies bring long-term care and retirement under one plan, this trend should continue in popularity. When properly executed, it gives retirees the guaranteed income they need to ensure adequate care and financial levels are in place to satisfy the rest of their lives.
Like I just mentioned, you have to have the right credit and policy choice to make any of this work for you. If you choose the wrong plan, your retirement could face a bumpy road. The hybrid policies are currently more alluring to wealthier retirees. However, it might work for you too, even if you don’t think you’re affluent enough.
Take a look at the example below from my book, . This should give you a clearer look at one scenario under the new annuities. Be sure to visit my blog in the coming weeks and months where I’ll have more helpful tips to steer you in the right direction.